Stitch Fix Announces Second Quarter Fiscal 2018 Financial Results

March 12, 2018

SAN FRANCISCO, March 12, 2018 (GLOBE NEWSWIRE) -- Stitch Fix, Inc. (NASDAQ:SFIX), an online personal styling service, has released its financial results for its second quarter of fiscal year 2018 ended January 27, 2018 and posted a letter to its shareholders on its investor relations website.

“We’re pleased to share strong results for our second quarter. We grew our active clients to 2.5 million, an increase of 588,000 and 31% year-over-year. We grew net revenue to $295.9 million, representing 24% year-over-year growth,” said Stitch Fix founder and CEO, Katrina Lake. “This quarter also marked the fourth consecutive quarter that we grew net revenue in the range of 25% year-over-year. In addition to strong momentum across our men’s and women’s categories, we’re excited about the potential of Extras, a new capability that allows us to serve more of our client’s wardrobe, while increasing incremental revenue.”

Please visit the Stitch Fix investor relations website at https://investors.stitchfix.com to view the financial results included in the letter to shareholders. The Company intends to make future announcements of material financial and other information through its investor relations website. The Company will also, from time to time, disclose this information through press releases, filings with the Securities and Exchange Commission, conference calls or webcasts, as required by applicable law.

Conference Call and Webcast Information

Katrina Lake, Chief Executive Officer and Founder of Stitch Fix, Paul Yee, Chief Financial Officer of Stitch Fix, and Mike Smith, Chief Operating Officer of Stitch Fix, will host a conference call at 2:00 p.m. Pacific Time today to discuss the Company’s financial results and outlook. A live webcast will be accessible on Stitch Fix’s investor relations website at investors.stitchfix.com. Interested parties can also access the call by dialing (877) 857-6176 in the U.S. or (719) 457-2642 internationally, and entering conference code 8518439.

A telephonic replay will be available through Monday, March 19, 2018 at (888) 203-1112 or (719) 457-0820, passcode 8518439. An archive of the webcast conference call will be available shortly after the call ends at https://investors.stitchfix.com.

About Stitch Fix, Inc.

Stitch Fix is reinventing the shopping experience by delivering one-to-one personalization to our clients, through the combination of data science and human judgment. Stitch Fix was founded in 2011 by CEO and Founder, Katrina Lake, and employs more than 5,800 employees nationwide. Since our founding in 2011, we’ve helped millions of men and women discover and buy what they love through personalized shipments of apparel, shoes and accessories, hand-selected by Stitch Fix stylists and delivered to our client’s homes.

Stitch Fix, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

January 27, 2018

July 29, 2017

Assets

Current assets:

Cash

$

266,374

$

110,608

Restricted cash

—

250

Inventory, net

80,094

67,592

Prepaid expenses and other current assets

11,653

19,312

Total current assets

358,121

197,762

Property and equipment, net

30,875

26,733

Deferred tax assets

14,493

19,991

Restricted cash, net of current portion

9,100

9,100

Other long-term assets

3,813

3,619

Total assets

$

416,402

$

257,205

Liabilities, Convertible Preferred Stock and Stockholders’ Equity

Current liabilities:

Accounts payable

$

55,145

$

44,238

Accrued liabilities

51,077

46,363

Preferred stock warrant liability

—

26,679

Gift card liability

8,151

5,190

Deferred revenue

10,433

7,150

Other current liabilities

4,953

4,298

Total current liabilities

129,759

133,918

Deferred rent, net of current portion

10,752

11,781

Other long-term liabilities

4,794

7,423

Total liabilities

145,305

153,122

Commitments and contingencies

Convertible preferred stock, $0.00002 par value – zero and 60,577,280 shares authorized as of
January 27, 2018 and July 29, 2017, respectively; zero and 59,511,055 shares issued and
outstanding as of January 27, 2018 and July 29, 2017, respectively; aggregate liquidation preference of $42,389 as of July 29, 2017

—

42,222

Stockholders’ equity:

Preferred stock, $0.00002 par value – 20,000,000 and zero shares authorized as of
January 27, 2018 and July 29, 2017, respectively; zero shares issued and outstanding
as of January 27, 2018 and July 29, 2017

—

—

Class A common stock, $0.00002 par value – 2,000,000,000 and zero shares authorized as of
January 27, 2018 and July 29, 2017, respectively; 9,175,557 and zero shares issued
and outstanding as of January 27, 2018 and July 29, 2017, respectively

—

—

Class B common stock, $0.00002 par value – 100,000,000 shares authorized as of
January 27, 2018 and July 29, 2017; 87,885,193 and 26,834,535 shares issued
and outstanding as of January 27, 2018 and July 29, 2017, respectively (1)

Purchases of property and equipment included in
accounts payable and accrued liabilities

$

780

$

208

Capitalized stock-based compensation

$

261

$

45

Vesting of early exercised options

$

456

$

488

Deferred offering costs included in accounts payable and accrued liabilities

$

134

$

—

Conversion of preferred stock upon initial public offering

$

42,222

$

—

Reclassification of preferred stock warrant liability upon initial public offering

$

15,994

$

—

Deferred offering costs paid in prior year

$

1,879

$

—

Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles in the United States, or GAAP. However, management believes that certain non-GAAP financial measures provide users of our financial information with additional useful information in evaluating our performance. Management believes that excluding certain items that may vary substantially in frequency and magnitude period-to-period from net income and earnings per share (“EPS”) provides useful supplemental measures that assist in evaluating our ability to generate earnings and to more readily compare these metrics between past and future periods. Management also believes that adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, and that such supplemental measure facilitates comparisons between companies. We believe free cash flow is an important metric because it represents a measure of how much cash from operations we have available for discretionary and non-discretionary items after the deduction of capital expenditures. These non-GAAP financial measures may be different than similarly titled measures used by other companies. For instance, we do not exclude stock-based compensation expense from adjusted EBITDA or non-GAAP net income. Stock-based compensation is an important part of how we attract and retain our employees, and we consider it to be a real cost of running the business.

Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of our non-GAAP financial measures as compared to the closest comparable GAAP measures. Some of these limitations include:

our non-GAAP net income and non-GAAP EPS – diluted measures exclude the impact of the remeasurement of our net deferred tax assets following the adoption of the Tax Cuts and Jobs Act (“Tax Act”);

our non-GAAP net income, adjusted EBITDA and non-GAAP EPS – diluted measures exclude the remeasurement of the preferred stock warrant liability, which is a non-cash expense incurred in the periods prior to the completion of our initial public offering;

adjusted EBITDA also excludes the recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;

adjusted EBITDA does not reflect our tax provision, which reduces cash available to us; and

free cash flow does not represent the total residual cash flow available for discretionary purposes and does not reflect our future contractual commitments.

Adjusted EBITDA

We define adjusted EBITDA as net income excluding other (income), net, provision for income taxes, depreciation and amortization, the remeasurement of preferred stock warrant liability and, when present, compensation expense related to certain stock sales by current and former employees. The following table presents a reconciliation of net income, the most comparable GAAP financial measure, to adjusted EBITDA for each of the periods presented (in thousands):

For the Three Months Ended

For the Six Months Ended

January 27,
2018

January 28,
2017

January 27,
2018

January 28,
2017

Adjusted EBITDA reconciliation:

Net income

$

3,641

$

233

$

17,129

$

13,476

Add (deduct):

Other income, net

(18

)

(6

)

(35

)

(13

)

Provision for income taxes

13,603

(486

)

18,747

11,303

Depreciation and amortization

2,618

1,924

4,888

3,385

Remeasurement of preferred stock warrant liability

(1,614

)

1,146

(10,685

)

2,649

Compensation expense related to certain stock sales by current and former employees

—

21,283

—

21,283

Adjusted EBITDA

$

18,230

$

24,094

$

30,044

$

52,083

Non-GAAP Net Income

We define non-GAAP net income as net income excluding the remeasurement of preferred stock warrant liability and, when present, compensation expense related to certain stock sales by current and former employees, and their related tax impacts, if any, as well as the remeasurement of our net deferred tax assets in relation to the adoption of the Tax Act. The following table presents a reconciliation of net income, the most comparable GAAP financial measure, to non-GAAP net income for each of the periods presented (in thousands):

For the Three Months Ended

For the Six Months Ended

January 27,
2018

January 28,
2017

January 27,
2018

January 28,
2017

Non-GAAP net income (loss) reconciliation:

Net income

$

3,641

$

233

$

17,129

$

13,476

Add (deduct):

Remeasurement of preferred stock warrant liability

(1,614

)

1,146

(10,685

)

2,649

Compensation expense related to certain stock sales by current and former employees

—

21,283

—

21,283

Tax impact of non-GAAP adjustments

—

(8,890

)

—

(8,890

)

Impact of Tax Act (1)

4,730

-

4,730

—

Non-GAAP net income

$

6,757

$

13,772

$

11,174

$

28,518

1) As discussed in Note 8 to the condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the fiscal quarter ended January 27, 2018, to be filed with the Securities and Exchange Commission on March 13, 2018 (“Form 10-Q”), the U.S. government enacted comprehensive tax legislation in December 2017. This resulted in a provisional net charge of $4.7 million for the three and six months ended January 27, 2018, due to the remeasurement of our net deferred tax assets for the reduction in tax rate from 35% to 21%. The adjustment to non-GAAP net income related to the Tax Act only includes this transitional impact. It does not include the ongoing impacts of the lower U.S. statutory rate on current year earnings.

Non-GAAP Earnings Per Share - Diluted

We define non-GAAP EPS as diluted EPS excluding the per share impact of the remeasurement of preferred stock warrant liability and, when present, compensation expense related to certain stock sales by current and former employees, and their related tax impacts, if any, as well as the per share impact of the remeasurement of our net deferred tax assets in relation to the adoption of the Tax Act. The following table presents a reconciliation of EPS attributable to common stockholders - diluted, the most comparable GAAP financial measure, to non-GAAP EPS attributable to common stockholders - diluted for each of the periods presented (in thousands):

For the Three Months Ended

For the Six Months Ended

January 27,
2018

January 28,
2017

January 27,
2018

January 28,
2017

Non-GAAP earnings per share - diluted reconciliation:

Earnings per share attributable to common stockholders - diluted

$

0.02

$

—

$

0.06

$

0.14

Per share impact of the remeasurement of preferred stock warrant
liability(1)

$

—

$

0.04

$

—

$

0.08

Per share impact of compensation expense related to certain stock
sales by current and former employees

$

—

$

0.66

$

—

$

0.61

Per share impact from tax effect of non-GAAP adjustments

$

—

$

(0.28

)

$

—

$

(0.26

)

Per share impact from Tax Act(2)

$

0.05

$

—

$

0.08

$

—

Non-GAAP earnings per share attributable to common stockholders - diluted

$

0.07

$

0.42

$

0.14

$

0.57

1) For the three and six months ended January 27, 2018, the preferred stock warrant liability was dilutive and included in earnings per share attributable to common stockholders - diluted. Therefore, it is not an adjustment to arrive at non-GAAP EPS - diluted.

2) As discussed in Note 8 to the condensed consolidated financial statements included in our Form 10-Q, the U.S. government enacted comprehensive tax legislation in December 2017. This resulted in a provisional net charge of $4.7 million for the three and six months ended January 27, 2018, due to the remeasurement of our net deferred tax assets for the reduction in tax rate from 35% to 21%. The adjustment to non-GAAP earnings per share attributable to common stockholders - diluted related to the Tax Act only includes this transitional impact. It does not include the ongoing impacts of the lower U.S. statutory rate on current year earnings.

Free Cash Flow

We define free cash flow as cash flow from operations reduced by purchases of property and equipment which is included in cash flow from investing activities. The following table presents a reconciliation of cash flows from operating activities, the most comparable GAAP financial measure, to free cash flow for each of the periods presented (in thousands):